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Danaos in “very strong financial position”

Danaos, one of the world’s largest independent owners of containerships, reported unaudited results for the period ended June 30, 2021.

Highlights for the Second Quarter and Half Year Ended June 30, 2021:

  • Adjusted net income1 of $68.9 million, or $3.34 per share, for the three months ended June 30, 2021 compared to $42.5 million, or $1.71 per share, for the three months ended June 30, 2020, an increase of 62.1%. Adjusted net income1 of $126.9 million, or $6.17 per share, for the six months ended June 30, 2021 compared to $75.8 million, or $3.06 per share, for the six months ended June 30, 2020, an increase of 67.4%.
  • Operating revenues of $146.4 million for the three months ended June 30, 2021 compared to $116.8 million for the three months ended June 30, 2020, an increase of 25.3%. Operating revenues of $278.5 million for the six months ended June 30, 2021 compared to $223.0 million for the six months ended June 30, 2020, an increase of 24.9%.
  • Adjusted EBITDA1 of $103.7 million for the three months ended June 30, 2021 compared to $80.1 million for the three months ended June 30, 2020, an increase of 29.5%. Adjusted EBITDA1 of $200.0 million for the six months ended June 30, 2021 compared to $152.0 million for the six months ended June 30, 2020, an increase of 31.6%.
  • Total contracted operating revenues were $1.75 billion as of June 30, 2021, including the Gemini vessels that were acquired in July 2021, with charters extending through 2028 and remaining average contracted charter duration of 3.4 years, weighted by aggregate contracted charter hire.
  • Charter coverage of 92% for the next 12 months based on current operating revenues and 90% in terms of contracted operating days.
  • We have collected an aggregate amount of $69.5 million of mandatory repayment of ZIM and HMM notes plus accrued interest of nearly $10 million in the six months ended June 30, 2021. Additionally, we have sold 2 million ZIM ordinary shares for net proceeds of $76.4 million in the six months ended June 30, 2021.
  • Danaos has declared a dividend of $0.50 per share of common stock for the second quarter of 2021, which is payable on August 30, 2021 to stockholders of record as of August 16, 2021.
Three and Six Months Ended June 30, 2021
Financial Summary – Unaudited
(Expressed in thousands of United States dollars, except per share amounts)
Three months

ended

Three months

ended

Six months

ended

Six months

ended

June 30, June 30, June 30, June 30,
2021 2020 2021 2020
Operating revenues $146,434 $116,824 $278,552 $223,020
Net income $372,837 $38,496 $669,617 $67,585
Adjusted net income1 $68,860 $42,494 $126,871 $75,775
Earnings per share, diluted $18.10 $1.55 $32.57 $2.73
Adjusted earnings per share, diluted1 $3.34 $1.71 $6.17 $3.06
Diluted weighted average number of shares (in thousands) 20,599 24,789 20,557 24,789
Adjusted EBITDA1 $103,736 $80,073 $200,018 $151,991
1 Adjusted net income adjusted earnings per share and adjusted EBITDA are non-GAAP measures. Refer to the reconciliation of net income to adjusted net income and net income to adjusted EBITDA.

Danaos’ CEO Dr. John Coustas commented:

“The containership market has maintained its positive momentum, which is reflected in increasing rates for both containers and vessel charters. Danaos is continuing to secure charters for its vessels for periods of between three and five years. It is noteworthy that some of these charters do not even begin until the middle of 2022. The market appears to be in short supply until at least the end of next year, and we have strong leverage to this dynamic.

The pandemic is continuing to cause inefficiencies in the transportation chain, and there is no obvious indication that conditions will normalize in the near term. Travel bans or restrictions are continuing to impede our efforts to normalize crew changes. Despite considerable difficulty in joining and repatriation, our vessel schedules have not been affected.

Our liquidity was enhanced in the second quarter by a total of $152.6 million from the redemption of the Zim and HMM bonds and the disposition of 2 million shares of Zim stock. In the aggregate our cash balance at the end of the quarter was $294.4 million.

Financially, Danaos is in a very strong position, with cash and marketable securities totaling over $600 million, a $1.75 billion backlog of charters extended out over an average of 3.4 years and a very manageable debt repayment schedule. We are also generating significant free cash flow on the back of exceptionally strong market conditions. This gives us the capacity and the confidence to grow our core business when opportunities appear. To that end, we exercised our option to purchase 51% of Gemini, our joint venture, taking full ownership of the entity and its assets. This added approximately $160 million of contracted revenue and approximately $117 million of contracted EBITDA to our backlog, while these vessels are expected to contribute $31 million of EBITDA over the next 12 months. The effective date of the transaction was July 1, 2021, meaning it will be immediately accretive in the third quarter.

Further we sourced an opportunity to buy six modern eco-design 5,460 TEU vessels built in 2014 and 2015 at a significant discount to their charter free values. These vessels are tied to below market, though still profitable, charters expiring from mid-2022 to mid-2024. They are of similar specification to newbuilding designs offered today, and we expect to recharter them at levels significantly higher than their existing charters. We were able to fund these growth opportunities using cash on our balance sheet, and we will evaluate whether we will increase our leverage with respect to these acquisitions moving forward.

Once again, the market dynamics are in our favor, and we will continue to deliver the best results possible for our shareholders.”

Three months ended June 30, 2021 compared to the three months ended June 30, 2020

During the three months ended June 30, 2021, Danaos had an average of 60.0 containerships compared to 57.1 containerships during the three months ended June 30, 2020. Our fleet utilization for the three months ended June 30, 2021 was 99.1% compared to 97.1% for the three months ended June 30, 2020.

Our adjusted net income amounted to $68.9 million, or $3.34 per share, for the three months ended June 30, 2021 compared to $42.5 million, or $1.71 per share, for the three months ended June 30, 2020. We have adjusted our net income in the three months ended June 30, 2021 for the gain on our investment in ZIM of $196.3 million, gain on debt extinguishment of $111.6 million and a non-cash fees amortization and accrued finance fees charge of $3.9 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $26.4 million in adjusted net income for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 is attributable mainly to a $29.6 million increase in operating revenues, a $3.8 million decrease in net finance expenses, and a $0.5 million increase in the operating performance of our equity investment in Gemini Shipholdings Corporation (“Gemini”), which were partially offset by a $7.5 million increase in total operating expenses.

On a non-adjusted basis, our net income amounted to $372.8 million, or $18.10 earnings per diluted share, for the three months ended June 30, 2021 compared to net income of $38.5 million, or $1.55 earnings per diluted share, for the three months ended June 30, 2020. Our net income for the three months ended June 30, 2021 includes gain on our investment in ZIM of $196.3 million and gain on debt extinguishment of $111.6 million.

Operating Revenues
Operating revenues increased by 25.3%, or $29.6 million, to $146.4 million in the three months ended June 30, 2021 from $116.8 million in the three months ended June 30, 2020.

Operating revenues for the three months ended June 30, 2021 reflect:

  • a $23.6 million increase in revenues in the three months ended June 30, 2021 compared to the three months ended June 30, 2020 mainly as a result of higher charter rates and improved fleet utilization; and
  • a $6.0 million increase in revenues in the three months ended June 30, 2021 compared to the three months ended June 30, 2020 due to the incremental revenue generated by five vessels acquired in 2020.

Vessel Operating Expenses
Vessel operating expenses increased by $4.3 million to $32.9 million in the three months ended June 30, 2021 from $28.6 million in the three months ended June 30, 2020, primarily as a result of the increase in the average number of vessels in our fleet and by an increase in the average daily operating cost of $6,241 per vessel per day for vessels on time charter for the three months ended June 30, 2021 compared to $5,787 per vessel per day for the three months ended June 30, 2020. The average daily operating cost increased mainly due to the COVID-19 related increase in crew remuneration in the three months ended June 30, 2021. Management believes that our daily operating cost remains among the most competitive in the industry.

Depreciation & Amortization
Depreciation & Amortization includes Depreciation and Amortization of Deferred Dry-docking and Special Survey Costs.

Depreciation
Depreciation expense increased by 3.2%, or $0.8 million, to $26.1 million in the three months ended June 30, 2021 from $25.3 million in the three months ended June 30, 2020 mainly due to the acquisition of five vessels and installation of scrubbers on nine of our vessels in the year ended December 31, 2020.

Amortization of Deferred Dry-docking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs decreased by $0.4 million to $2.5 million in the three months ended June 30, 2021 from $2.9 million in the three months ended June 30, 2020.

General and Administrative Expenses
General and administrative expenses increased by $1.1 million to $7.1 million in the three months ended June 30, 2021, from $6.0 million in the three months ended June 30, 2020. The increase was mainly attributable to increased management fees due to the increased size of our fleet and other corporate administrative expenses.

Other Operating Expenses
Other Operating Expenses include Voyage Expenses.

Voyage Expenses
Voyage expenses increased by $1.7 million to $5.0 million in the three months ended June 30, 2021 from $3.3 million in the three months ended June 30, 2020 primarily as a result of the increase in commissions due to the increase in revenue per vessel and the increase in average number of vessels in our fleet.

Interest Expense and Interest Income
Interest expense increased by 33.8%, or $4.6 million, to $18.2 million in the three months ended June 30, 2021 from $13.6 million in the three months ended June 30, 2020. The increase in interest expense is a combined result of:

  • a $2.2 million improvement in interest expense because of a decrease in our average indebtedness by $69.6 million between the two periods (average indebtedness of $1,465.3 million in the three months ended June 30, 2021, compared to average indebtedness of $1,534.9 million in the three months ended June 30, 2020) and a decrease in our debt service cost by approximately 0.36%;
  • a reduced by $6.7 million recognition through our income statement of accumulated accrued interest that had been accrued in 2018 in relation to two of our credit facilities that were refinanced on April 12, 2021. As a result of the refinancing, the recognition of such accumulated interest has been decreased; and
  • a $0.1 million increase in the amortization of deferred finance costs and debt discount related to our debt.

Net proceeds from issuance of our $300 million Senior Notes in February 2021 together with the net proceeds from a new $815 million senior secured credit facility and a new $135 million leaseback arrangement, each drawn down on April 12, 2021 were used to refinance a substantial majority of our indebtedness.

As of June 30, 2021, our outstanding bank debt, gross of deferred finance costs, was $1,165.9 million, which includes $300 million aggregate principal amount of our Senior Notes, and our leaseback obligation was $237.2 million. These balances compare to bank debt of $1,392.6 million and a leaseback obligation of $135.2 million as of June 30, 2020.

Interest income increased by $7.9 million to $9.5 million in the three months ended June 30, 2021 compared to $1.6 million in the three months ended June 30, 2020 mainly as a result of collection of accrued interest on ZIM and HMM bonds, which were redeemed by the issuers thereof during the 2021 period.

Gain on investments
The gain on investments of $196.3 million relates to change in fair value of our shareholding interest in ZIM, which completed its initial public offering and listing on the New York Stock Exchange of its ordinary shares on January 27, 2021. In June 2021, we sold 2,000,000 ordinary shares of ZIM resulting in net proceeds of $76.4 million. The remaining shareholding interest of 8,186,950 ordinary shares has been fair valued at $367.8 million as of June 30, 2021, based on the closing price of ZIM ordinary shares on the NYSE on that date.

Gain on debt extinguishment
The gain on debt extinguishment of $111.6 million in the three months ended June 30, 2021 related to our debt refinancing on April 12, 2021, as described above.

Other finance costs, net
Other finance costs, net decreased by $0.4 million to $0.6 million in the three months ended June 30, 2021 compared to $1.0 million in the three months ended June 30, 2020 due to the decreased finance costs on the refinanced debt.

Equity income on investments
Equity income on investments increased by $0.5 million to $2.2 million of income on investments in the three months ended June 30, 2021 compared to $1.7 million in the three months ended June 30, 2020 due to the improved operating performance of Gemini, in which the Company had a 49% shareholding interest.

Loss on derivatives
Amortization of deferred realized losses on interest rate swaps remained stable at $0.9 million in each of the three months ended June 30, 2021 and June 30, 2020.

Other income, net
Other income, net was $0.2 million in the three months ended June 30, 2021 compared to nil in the three months ended June 30, 2020.

Adjusted EBITDA
Adjusted EBITDA increased by 29.5%, or $23.6 million, to $103.7 million in the three months ended June 30, 2021 from $80.1 million in the three months ended June 30, 2020. As outlined above, the increase is mainly attributable to a $29.6 million increase in operating revenues, a $0.5 million increase in the operating performance of our equity investees and a $0.3 million decrease in other finance expenses, which were partially offset by a $6.8 million increase in total operating expenses. Adjusted EBITDA for the three months ended June 30, 2021 is adjusted for the gain on investments of $196.3 million, gain on debt extinguishment of $111.6 million and stock based compensation of $0.6 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Six months ended June 30, 2021 compared to the six months ended June 30, 2020

During the six months ended June 30, 2021, Danaos had an average of 60.0 containerships compared to 56.4 containerships during the six months ended June 30, 2020. Our fleet utilization for the six months ended June 30, 2021 was 98.9% compared to 94.2% for the six months ended June 30, 2020. Adjusted fleet utilization, excluding the effect of 188 days of incremental off-hire due to shipyard delays related to the COVID-19 pandemic, was 96.1% in the six months ended June 30, 2020.

Our adjusted net income amounted to $126.9 million, or $6.17 per share, for the six months ended June 30, 2021 compared to $75.8 million, or $3.06 per share, for the six months ended June 30, 2020. We have adjusted our net income in the six months ended June 30, 2021 for the gain on our investment in ZIM of $444.2 million, gain on debt extinguishment of $111.6 million, a non-cash fees amortization and accrued finance fees charge of $9.0 million and stock-based compensation of $4.1 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $51.1 million in adjusted net income for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 is attributable mainly to a $55.5 million increase in operating revenues, a partial collection of common benefit claim of $3.9 million from Hanjin Shipping, a $6.2 million decrease in net finance expenses and a $0.7 million increase in the operating performance of our equity investment in Gemini, which were partially offset by a $15.2 million increase in total operating expenses.

On a non-adjusted basis, our net income amounted to $669.6 million, or $32.57 earnings per diluted share, for the six months ended June 30, 2021 compared to net income of $67.6 million, or $2.73 earnings per diluted share, for the six months ended June 30, 2020. Our net income for the six months ended June 30, 2021 includes gain on our investment in ZIM of $444.2 million and gain on debt extinguishment of $111.6 million.

Operating Revenues
Operating revenues increased by 24.9%, or $55.5 million, to $278.5 million in the six months ended June 30, 2021 from $223.0 million in the six months ended June 30, 2020.

Operating revenues for the six months ended June 30, 2021 reflect:

  • a $40.9 million increase in revenues in the six months ended June 30, 2021 compared to the six months ended June 30, 2020 mainly as a result of higher charter rates and improved fleet utilization; and
  • a $14.6 million increase in revenues in the six months ended June 30, 2021 compared to the six months ended June 30, 2020 due to the incremental revenue generated by five vessels acquired in 2020.

Vessel Operating Expenses
Vessel operating expenses increased by $9.4 million to $64.0 million in the six months ended June 30, 2021 from $54.6 million in the six months ended June 30, 2020, primarily as a result of the increase in the average number of vessels in our fleet and by an increase in the average daily operating cost of $6,098 per vessel per day for vessels on time charter for the six months ended June 30, 2021 compared to $5,657 per vessel per day for the six months ended June 30, 2020. The average daily operating cost increased mainly due to the COVID-19 related increase in crew remuneration in the six months ended June 30, 2021. Management believes that our daily operating cost remains among the most competitive in the industry.

Depreciation & Amortization
Depreciation & Amortization includes Depreciation and Amortization of Deferred Dry-docking and Special Survey Costs.

Depreciation
Depreciation expense increased by 4.2%, or $2.1 million, to $51.9 million in the six months ended June 30, 2021 from $49.8 million in the six months ended June 30, 2020 mainly due to the acquisition of five vessels and installation of scrubbers on nine of our vessels in the year ended December 31, 2020.

Amortization of Deferred Dry-docking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs decreased by $0.2 million to $5.1 million in the six months ended June 30, 2021 from $5.3 million in the six months ended June 30, 2020.

General and Administrative Expenses
General and administrative expenses increased by $6.1 million to $18.0 million in the six months ended June 30, 2021, from $11.9 million in the six months ended June 30, 2020. The increase was mainly attributable to increased management fees due to the increased size of our fleet and increased stock-based compensation.

Other Operating Expenses
Other Operating Expenses include Voyage Expenses.

Voyage Expenses
Voyage expenses increased by $1.9 million to $9.2 million in the six months ended June 30, 2021 from $7.3 million in the six months ended June 30, 2020 primarily as a result of the increase in commissions due to the increase in revenue per vessel and the increase in average number of vessels in our fleet.

Interest Expense and Interest Income
Interest expense increased by 11.4%, or $3.4 million, to $33.3 million in the six months ended June 30, 2021 from $29.9 million in the six months ended June 30, 2020. The increase in interest expense is a combined result of:

  • a $7.5 million improvement in interest expense because of a decrease in our debt service cost by approximately 0.94%, while our average indebtedness remained stable at $1,539.5 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020;
  • a reduced by $10.0 million recognition through our income statement of accumulated accrued interest that had been accrued in 2018 in relation to two of our credit facilities that were refinanced on April 12, 2021. As a result of the refinancing, the recognition of such accumulated interest has been decreased; and
  • a $0.9 million increase in the amortization of deferred finance costs and debt discount related to our debt.

Net proceeds from issuance of our $300 million Senior Notes in February 2021 together with the net proceeds from a new $815 million senior secured credit facility and a new $135 million leaseback arrangement, each drawn down on April 12, 2021 were used to refinance a substantial majority of our indebtedness.

As of June 30, 2021, our outstanding bank debt, gross of deferred finance costs, was $1,165.9 million, which includes $300 million aggregate principal amount of our Senior Notes, and our leaseback obligation was $237.2 million. These balances compare to bank debt of $1,392.6 million and a leaseback obligation of $135.2 million as of June 30, 2020.

Interest income increased by $8.2 million to $11.5 million in the six months ended June 30, 2021 compared to $3.3 million in the six months ended June 30, 2020, mainly as a result of collection of accrued interest on ZIM and HMM bonds, which were redeemed by the issuers thereof during the 2021 period.

Gain on investments
The gain on investments of $444.2 million relates to change in fair value of our shareholding interest in ZIM, which completed its initial public offering and listing on the New York Stock Exchange of its ordinary shares on January 27, 2021. In June 2021, we sold 2,000,000 ordinary shares of ZIM resulting in net proceeds of $76.4 million. For the six months ended June 30, 2021, the unrealized gain related to the ZIM ordinary shares still held on June 30, 2021 amounted to $367.8 million. The remaining shareholding interest of 8,186,950 ordinary shares has been fair valued at $367.8 million as of June 30, 2021, based on the closing price of ZIM ordinary shares on the NYSE on that date compared to the book value of these shares of $75 thousand as of December 31, 2020.

Gain on debt extinguishment
The gain on debt extinguishment of $111.6 million in the six months ended June 30, 2021 related to our debt refinancing on April 12, 2021, as described above.

Other finance costs, net
Other finance costs, net decreased by $0.7 million to $1.0 million in the six months ended June 30, 2021 compared to $1.7 million in the six months ended June 30, 2020 due to the decreased finance costs on the refinanced debt.

Equity income on investments
Equity income on investments increased by $0.7 million to $4.0 million of income on investments in the six months ended June 30, 2021 compared to $3.3 million in the six months ended June 30, 2020 due to the improved operating performance of Gemini, in which the Company had a 49% shareholding interest.

Loss on derivatives
Amortization of deferred realized losses on interest rate swaps remained stable at $1.8 million in each of the six months ended June 30, 2021 and June 30, 2020.

Other income, net
Other income, net was $4.1 million in income in the six months ended June 30, 2021 compared to $0.3 million in income in the six months ended June 30, 2020. The increase was mainly due to the collection from Hanjin Shipping of $3.9 million as a partial payment of common benefit claim and interest.

Adjusted EBITDA
Adjusted EBITDA increased by 31.6%, or $48.0 million, to $200.0 million in the six months ended June 30, 2021 from $152.0 million in the six months ended June 30, 2020. As outlined above, the increase is mainly attributable to a $55.5 million increase in operating revenues, a partial collection of common benefit claim of $3.9 million from Hanjin Shipping, a $0.7 million increase in the operating performance of our equity investees and a $0.5 million decrease in net finance expenses, which were partially offset by a $12.6 million increase in total operating expenses. Adjusted EBITDA for the six months ended June 30, 2021 is adjusted for change in fair value of investments of $444.2 million, gain on debt extinguishment of $111.6 million and stock based compensation of $5.5 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Dividend Payment
Danaos has declared a dividend of $0.50 per share of common stock for the second quarter of 2021, which is payable on August 30, 2021 to stockholders of record as of August 16, 2021.

Recent Developments
As previously announced, on July 1, 2021, we exercised our option to acquire the remaining equity interest in Gemini. The purchase price for the 51% of Gemini was $86.7 million in cash.

As previously announced, we have entered into an agreement to acquire six 5,500 TEU vessels for a gross purchase price amounting to $260.0 million. These vessels are expected to be delivered to us from August to October 2021.

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